ACIT, CHENNAI V. M/s. Integrated Finance Company Ltd., CHENNAI

ITA 1430/CHNY/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8306 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-11-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 02-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIVEKANANDAN IRS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Opportunity of being heard; Additional evidence
• Section: 145; 6; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , ! ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.1430/MDS/2012 ! # $# / ASSESSMENT YEAR : 2005-2006 THE ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE II(3) CHENNAI 600 034 VS. M/S. INTEGRATED FINANCE COMPANY LTD, R-10, II FLOOR, PREM NAGAR COLONY, SOUTH BOAG ROAD, T. NAGAR, CHENNAI 600 017. [PAN AAACI 0876M] ( / APPELLANT) ( /RESPONDENT) %& ' ( / APPELLANT BY : SHRI. V. VIVEKANANDAN, IRS, CIT. )*%& ' ( /RESPONDENT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE ' + / DATE OF HEARING : 03-11-2015 ,-$ ' + / DATE OF PRONOUNCEMENT : 05-01-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XII, CHENNAI I N ITA NO.78/2011-2012, DATED 30.03.2012 FOR THE ASSESSMEN T YEAR 2005- ITA NO.1430/MDS/2012 :- 2 -: 2006 PASSED U/S.143(3) R.W.S.263 AND 250 OF THE INC OME TAX ACT, 1961. 2. THE REVENUE HAS RAISED TWO SUBSTANTIVE GROUNDS ON T HE ISSUE OF DELETION OF REBATE ON HIRE PURCHASE WRITTE N OFF BY THE COMMISSIONER OF INCOME TAX (APPEALS) AND ALSO DELET ION OF ADDITION ON ADDITIONAL FINANCE CHARGES ON ACCOUNT OF CHANGE IN METHOD OF ACCOUNTING FROM MERCANTILE BASIS TO CASH BASIS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF HIRE PURCHASE, LEASING, FACTORING AND REAL ESTATE WORKS. FOR THE ASSESSMENT YEAR 2005-2006, T HE ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 04.12.2007 D ETERMINING TOTAL LOSS OF ;17,73,71,490/- AND SUBSEQUENTLY UNDER RECT IFICATION U/S.154 OF THE ACT DATED 18.08.2008 THE TOTAL LOSS WAS RECOMPU TED TO ;19,39,20,047/- AND ASSESSEE HAS FILED AN APPEAL AG GRIEVED BY THE ASSESSING OFFICER ORDER AND PARTIAL RELIEF WAS GRAN TED BY COMMISSIONER OF INCOME TAX (APPEALS) AND SUBSEQUENTLY, BOTH ASSE SSEE AND DEPARTMENT WERE IN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ORDER DATED 24.07.2009 REMITTED THE ISSUE TO THE FI LE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS AND THE CASE WAS RE FIXED FOR HEARING. WHEN THE MATTER WAS PENDING BEFORE THE ASSESSING OF FICER, THE LD. COMMISSIONER OF INCOME TAX UNDER PROVISIONS OF SEC. 263 OF THE ACT ITA NO.1430/MDS/2012 :- 3 -: PASSED AN ORDER SETTING ASIDE THE EARLIER ASSESSME NT TO EXAMINE THE ISSUE ON REBATE ON HIRE PURCHASE AND ACCOUNTING PO LICY IN RESPECT OF ADDITIONAL FINANCIAL CHARGES AND NON RECOGNITION O F INCOME IN THE CURRENT YEAR. THE ASSESSING OFFICER ISSUED NOTICE U /S.142(1) AND CALLED FOR THE DETAILS. IN COMPLIANCE TO NOTICE, THE LD. AUTHORISED REPRESENTATIVE FILED EXPLANATIONS AND SUBMITTED DET AILS CALLED FOR FROM TIME TO TIME. THE ASSESSING OFFICER ON THE DIRECTI ONS OF COMMISSIONER OF INCOME TAX HAS CALLED FOR THE CLARIFICATIONS ABO UT REBATE ON HIRE PURCHASE ;4,11,66,754/-. FURTHER, THE ASSESSEE H AS NOT ENTERED INTO ANY NEW HIRE PURCHASE AGREEMENT DURING THE PREVIOUS YEAR 2004-2005. THE LD. AUTHORISED REPRESENTATIVE EXPLAINED THAT TH E HIRE PURCHASE REBATE REPRESENTS RESIDUAL BALANCES OF PARTIES AFTE R SETTLEMENT OF ACCOUNTS WHICH ARE IRRECOVERABLE AND CLAIMED AS DE DUCTION. THE ASSESSING OFFICER DISALLOWED THE CLAIM AS ASSESSEE COMPANY HAS NOT FULFILLED THE CONDITIONS OF THE PROVISIONS UNDER 36 (1)(VII) OF THE ACT AND NOT PRODUCED LEDGER ACCOUNTS OF PARTIES DISCLOSIN G AMOUNT WRITTEN OFF IN BOOKS. FURTHER, THE ASSESSING OFFICER ON PERUS AL OF PROFIT AND LOSS ACCOUNT FOUND ;5,74,75,603/- INCOME FROM OPERATIONS COMPARATIVELY LESS THAN EARLIER ASSESSMENT YEAR 2004-2005. ON E XAMINING THE AUDITED ACCOUNTS AND NOTES ON ACCOUNTS FOUND ADDITI ONAL FINANCIAL CHARGES ON ACCOUNT OF DELAYED OR NON REMITTANCE OF INSTALLMENT DUES PERTAINING TO HIRE PURCHASE AND ITA NO.1430/MDS/2012 :- 4 -: FINANCIAL LEASE CONTRACTS ARE NOT RECOGNIZED. THE ASSESSING OFFICER ISSUED NOTICE AND CALLED FOR THE EXPLANATIONS ON DI SPUTED ISSUE AND THE ASSESSEE FILED WRITTEN SUBMISSIONS AND EXPLAINED TH AT DUE TO CHANGE IN METHOD OF ACCOUNTING AND ALSO NON-REMITTANCE OF IN STALLMENTS IN EARLIER YEAR, INCOME IS NOT RECOGNIZED ON ACCRUAL B ASIS. SINCE THE ASSESSEE HAS CHANGED METHOD OF ACCOUNTING FROM ACC RUAL SYSTEM TO CASH SYSTEM THE LD. ASSESSING OFFICER WITHOUT CONS IDERING CHANGE IN ACCOUNTING SYSTEM MADE AN ADDITION AND COMPLETED AS SESSMENT. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEA LS). 4. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE HAS RAIS ED GROUNDS ON REBATE ON HIRE PURCHASE AND REITERATED S UBMISSIONS THAT SUCH SUM REPRESENTED THE AMOUNT WRITTEN OFF AS IRRE COVERABLE AND REPRESENTS THE BALANCE AFTER SETTLEMENT IN THE PAR TIES ACCOUNTS AND ALSO RELIED ON THE APEX COURT DECISION IN THE CASE OF T.R.F. LTD VS. COMMISSIONER OF INCOME TAX (2010) 323 ITR 397(SC . FURTHER, THE LD. AUTHORISED REPRESENTATIVE FILED WRITTEN SUBMISSION S AND SUPPORTED HIS ARGUMENTS AND FURNISHED LIST OF REBATES ON HIRE PUR CHASE EXCEEDING ;1 LAKH AMOUNTING TO ;1.33 CRORES AGAINST 13 PARTIES A ND ALSO FURNISHED LEDGER EXTRACTS OF RESPECTIVE HIRE PURCHASE ACCOUNT S. THE ASSESSEE ALSO FURNISHED LIST OF MAJOR HIRE PURCHASE ACCOUNT S. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE EXPLANATIONS ITA NO.1430/MDS/2012 :- 5 -: AND ALSO LEDGER ACCOUNTS COPIES SUBMITTED IN APPELL ATE PROCEEDINGS AND GAVE A CATEGORICAL FINDING, RELYING ON THE PROV ISIONS OF SEC.36(1)(VII) OF THE ACT AND DIRECTED THE ASSESSIN G OFFICER TO DELETE THE ADDITION. 4.1 ON THE NEXT GROUND OF THE ADDITIONAL FINANCE CH ARGES OF ;23,81,38,000/- THE LD. AUTHORISED REPRESENTATIVE R EITERATED HIS SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND E XPLAINED THE PROVISIONS OF COMPANIES ACT IN RESPECT OF NPA AND A LSO FILED WRITTEN SUBMISSIONS ALONGWITH JUDICIAL DECISIONS AND THE LD .CIT(A) PERUSED THE DIRECTORS REPORT AND ALSO ACCOUNTING POLICIES IN A NNUAL REPORT AND FOUND REDUCTION IN THE FINANCE CHARGES COMPARED TO EARLIER YEARS DUE TO DEEP FINANCIAL CRISIS OWING TO POOR RECOVERIES AND INTEREST, WERE THE RECOVERIES OF PRINCIPLE COMPONENT IN MAJORITY OF HI RE PURCHASE TRANSACTION HAS BECOME DOUBTFUL. IN SUCH CIRCUMSTAN CES, CHARGING OF ADDITIONAL FINANCE CHARGES ON OVER DUE DEFAULT PAY MENT OF INSTALLMENT IS NOT GOOD BUSINESS PRACTICE. THE ASSESSEE COMPA NY ANALYZED THE VARIOUS FACTORS TO CHANGE THE ACCOUNTING POLICY BY NOT RECOGNIZING AFC ON THE OVERDUE INSTALLMENT OF RECOVERIES AND S UPPORTED THE CASE WITH JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS. ANNAMALAI FINANCE LTD (2010 (186 TAXMAN 296) (MAD ) AND LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED AT PAGE NO.13 OF THE ORDER AS UNDER:- ITA NO.1430/MDS/2012 :- 6 -: SECTION 145 OF THE INCOME TAX ACT, 1961- CHANGE O F METHOD OF ACCOUNTING ASSESSMENT YEAR 1997-98 AS SESSEE WAS A FINANCE COMPANY DURING RELEVANT ASSESSMENT YEAR, IT ADMITTED OVERDUE FINANCIAL CHARGES ON HIRE PURCHASE AND LEASE TRANSACTIONS ON CASH BASIS I.E. ON RECEIPT BASIS, A ND NOT ON ACCRUAL BASIS -ASSESSING OFFICER HELD THAT SINCE A SSESSEE HAD BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING FOR ALL INCOMES AND EXPENSES, SAME HAD TO BE ADOPTED IN RESPECT OF OVERDUE FINANCIAL CHARGES AS MANDATED BY SECTION 145. WHEN IN TERMS OF HIRE PURCHASE/LEASE AGREEMENTS OVE RDUE CHARGES WERE PAYABLE BY PARTIES CONCERNED TO ASSESS EE WHEN THEY MADE DEFAULTS IN PAYING INSTALLMENTS AS PER SC HEDULE OF PAYMENTS, THERE WAS NO BASIS OF MAKING OUT A CASE T HAT ADDITIONAL OVERDUE CHARGES PAYABLE BY PARTIES WOULD BE COLLECTIBLE WITH CERTAINTY. IN SUCH CASES, IT WAS VERY DIFFICULT TO RECOGNIZE I NCOME AGAINST OVERDUE CHARGES AND THEREFORE, TRIBUNAL WAS JUSTIFI ED IN DELETING ADDITIONS MADE TOWARDS OVERDUE CHARGES, ACKNOWLEDGING CHANGE OF METHOD OF ACCOUNTING OF OVE RDUE INTEREST ALONE ON CASH BASIS. AND ALLOWED THE APPEAL OF THE ASSESSEE BY DIRECTIN G THE ASSESSING OFFICER TO DELETE THE ADDITION. AGGRIEVED BY THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE H AS FILED AN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE ISSUE OF DELETION OF REBATE ON HIRE PURCHASE WRITTEN OFF HAS SUBMITTE D THAT THE ASSESSEE COMPANY HAS NOT COMPLIED WITH THE PROVISIONS OF SEC .37 AND 36(1)(VII) OF THE ACT AND ALSO THE ASSESSEE HAS NOT PRODUCED A NY EVIDENCE OF WRITTEN OFF IN THE BOOKS OF ACCOUNTS IN THE ASSESSM ENT PROCEEDINGS. THE ASSESSEE HAS SUBMITTED LEDGER ACCOUNTS OF PART IES AND DETAILS OF MAJOR HIRE PURCHASE TRANSACTIONS IN APPELLATE PROCE EDINGS. THE LD. ITA NO.1430/MDS/2012 :- 7 -: COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT CALLED FOR ANY COMMENTS OR REMAND REPORT FROM THE ASSESSING OFFICE R AND SIMILARLY ON THE NEXT ISSUE OF CHARGING ADDITIONAL FINANCE CH ARGES NOT RECOGNIZED BY THE ASSESSEE DUE TO CHANGE IN METHOD OF ACCOUNTI NG FROM MERCANTILE SYSTEM TO CASH SYSTEM. FURTHER, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE BURDEN LIES ON THE ASSESSEE TO SUPPORT WITH EVIDENCE TO CLAIM DEDUCTIONS UNDER THE PROVISI ONS OF LAW AND THE LD.CIT(A) UNILATERALLY DECIDED THE ISSUE WITHOUT CA LLING FOR COMMENTS AND NO OPPORTUNITY WAS PROVIDED TO ASSESSING OFFICE R TO VERIFY THE EVIDENCES FURNISHED BY THE ASSESSEE FOR THE FIRS T TIME IN APPELLATE PROCEEDINGS AND PRAYED THE ORDER OF LD. COMMISSION ER OF INCOME TAX (APPEALS) TO BE SET ASIDE. 6. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIV E RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) AND SUBSTANTIATED HIS ARGUMENTS WITH THE LEGAL DECISION S AND ALSO SUBMITTED PAPER BOOK WITH DETAILS OF REBATE ON HIR E PURCHASE AND ADDITIONAL FINANCIAL CHARGES AND PRAYED FOR DISMISS AL OF REVENUE APPEAL. 7. WE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL ON RECORD AND ALSO JUDICIAL DECISIONS CITED. THE ASSESSEE COMPANY BEING IN FINANCE AND LEASING BUSINESS HAS C LAIMED REBATE ON ITA NO.1430/MDS/2012 :- 8 -: HIRE PURCHASE WRITTEN OFF IN THE BOOKS OF ACCOUNTS BASED UPON THE GUIDELINES AND ACCOUNTING POLICIES OF ICAI. BUT N O INFORMATION WAS SUBMITTED TO SUBSTANTIATE THE CLAIM BEFORE COMPLETI ON OF ASSESSMENT. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE HAS SUBM ITTED WRITTEN SUBMISSIONS AND ALSO FILED LEDGER COPIES OF HIRE PU RCHASE ACCOUNTS, WHICH THE ASSESSING OFFICER COULD NOT VERIFY THE GE NUINESS OF THE TRANSACTION. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT UNDER RULE 46A ADDITIONAL EVIDENCE WAS SUBMITTED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT PR OVIDING AN OPPORTUNITY TO THE ASSESSING OFFICER TO EXAMINE THE ISSUE AND THE NEXT GROUND IS CONNECTED TO HIRE PURCHASE WERE THE ASSE SSEE COMPANY HAS NOT RECOGNIZED ADDITIONAL FINANCE CHARGES ON NPA AN D CHANGED METHOD OF ACCOUNTING FROM MERCANTILE SYSTEM TO CASH SYSTEM. THE LD. AUTHORISED REPRESENTATIVE EXPLAINED THE HARDSHIP AND CONSTRAINS OF THE COMPANY FOR RECOVERIES, WERE MAJORITY OF HIRE P URCHASE TRANSACTIONS HAVE DEFAULTED AND CHARGING OF ADDITIO NAL FINANCE CHARGES ON NPA WILL NOT BE PRUDENT PRACTICE FOR THE COMPAN Y. THE LD. AUTHORISED REPRESENTATIVE FILED PAPER BOOK AND DRE W OUR ATTENTION TO PAGE NO.17 WERE LIST OF PARTIES ON WHICH ADDITION AL FINANCIAL CHARGES NOT RECOGNIZED DURING THE FINANCIAL YEAR 2004-2005. 8. WE CONSIDERING THE EVIDENCES SUBMITTED IN APPELLATE PROCEEDINGS AND SUBMISSIONS OF THE LD. DEPARTMENTA L REPRESENTATIVE, ITA NO.1430/MDS/2012 :- 9 -: SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS) AND REMIT BOTH THE ISSUES TO THE FILE OF THE ASSESSING OFFICER TO RE-EXAMINE IN DETAIL WITH EVIDENCE FURNISHED AFTER PROVIDING A DEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE ON MERITS. ACCORDINGLY, THE APPEAL OF THE REVENUE IS ALLOWED F OR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON TUESDAY, THE 5TH DAY OF JANUARY , 2016 AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI . / DATED:05.01.2016. KV / ' )!+12 32$+ / COPY TO: 1 . %& / APPELLANT 3. 4+ () / CIT(A) 5. 278 )!+! / DR 2. )*%& / RESPONDENT 4. 4+ / CIT 6. 89# : / GF